Experimental Economics

, Volume 10, Issue 3, pp 285–303 | Cite as

Solving coordination failure with “all-or-none” group-level incentives

Article

Abstract

Coordinating activity among members is an important problem faced by organizations. When firms, or units within firms, are stuck in bad equilibria, managers may turn to the temporary use of simple incentives—flat punishments or rewards—in an attempt to transition the firm or unit to a more efficient equilibrium. We investigate the use of incentives in the context of the “minimum-effort,” or “weak-link,” coordination game. We allow groups to reach the inefficient equilibrium and then implement temporary, flat, “all-or-none” incentives to encourage coordination on more efficient equilibria. We vary whether incentives are positive (rewards) or negative (penalties), whether they have substantial or nominal monetary value, and whether they are targeted to a specific outcome (the efficient equilibrium) or untargeted (apply to more than one outcome). Overall, incentives of all kinds are effective at improving coordination while they are in place, but there is little long-term persistent benefit of incentives—once incentives are removed, groups tend to return to the inefficient outcome. We find some differences between different kinds of incentives. Finally, we contrast our results to other recent work demonstrating greater long-term effectiveness of temporary incentives.

Keywords

Coordination Incentives Organizations Experiments 

JEL

C72 C92 D29 

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Copyright information

© Economic Science Association 2007

Authors and Affiliations

  1. 1.Department of Social and Decision SciencesCarnegie Mellon UniversityPittsburghUSA
  2. 2.The Wharton SchoolUniversity of PennsylvaniaPhiladelphiaUSA

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